“The need to have good portfolio construction is not limited to large portfolios,” Weaver told FINalternatives in a recent phone interview. “Everybody needs to have exactly the same return enhancers and risk-reducers regardless of the number of zeroes that they may have in their portfolio.”

But Weaver, who has spent much of her career building hedge fund portfolios, said she was initially skeptical about their ability to offer a “diversified non-correlated return stream” in a mutual fund wrapper:

“We were not interested in doing something that was sort of proxy trade or short-cut or not really doing what we had done historically...using limited partnerships,” said Weaver. “But with that healthy skepticism we really dug in to see what you could do in the mutual fund format and how closely that could reflect the types of strategies and the way of executing those strategies that we had been doing for the last 20 years.”

What they found, she said, was that if they were prepared to do a lot of the “heavy lifting”—for example, using multiple prime brokers and providing managers with the tools and instruments they were used to being able to access in the private funds—“almost all the strategies could be utilized within a mutual fund."

They chose to launch a multi-manager, multi-strategy fund, said Weaver, because “many of the single strategies would not be able to comply with the restrictions of a mutual fund, they trip different trip wires.

“For instance, a more concentrated portfolio such as an activist manager might trip the concentration restriction and yet, [if] that same manager [is] part of a well-diversified portfolio...of over 200 positions, concentration is no longer an issue.”

The managers in the mutual fund are managers Collins has already invested with on the private side and the hurdles they must jump on both sides are largely the same:

“What we were looking for and what is very important to us is managers that have strong risk discipline within their portfolios, that have a very healthy respect for the preservation of capital, that can be nimble and opportunistic and that can identify mispricing and anomalies in the market,” said Weaver.

The variety of strategies in the portfolio is no accident:

“One of the things that's probably very different about our approach is we're going to have managers that may be using credit to express their conviction, they could be using equity instruments, they could be using interest rates,...they could be focused on only emerging markets, they could be focused on developed markets; all of that is a belt and suspenders approach that further reduces the volatility of the portfolio but enhances the return,” said Weaver.

What they don't look for, she said, are managers “who are predominantly trying to chase beta.”

“[I]nvestors can access beta, that's easy, there are a variety of ways to access beta, what they're looking for is a way to access alpha that is complementary to other pieces of their portfolio but non-correlated.”

Their ultimate consideration in evaluating a manager, said Weaver, is “do they bring us an exposure we don't already have in a compelling risk-adjusted way?” If they do, she said, they are considered for both the limited partnership and the mutual fund.

Weaver said they continue to actively manage the mutual fund. “We're not trying to market time and we're not trying to be hot money, but we do recognize that there are certain environments that offer a particular wind-at-the-back or wind-in-the-face of certain strategies and in a very collaborative discussion with our managers we may increase and decrease allocations to reflect those particular opportunities.”

They have no rules as to the size of the funds in which they'll invest—that varies by strategy and the manager's execution of that strategy. Similarly, there's no “optimal” number of managers for the fund.

“What is important to us,” said Weaver, “is that we have the exposures that we wish to have and that those exposures are non-correlated within the portfolio to each other.”

They have added managers since the launch—Clinton Group was not in the initial line-up—and will continue to add managers in future.

Since establishing its one-year track record in April, the fund has doubled its assets under management to $70 million.

Editor's Note

In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…